WATERLOO, Ontario— BlackBerry Ltd. maintained Friday that its turnaround strategy was on track, but sagging revenue and the company’s decision to launch an Android-powered phone to boost device sales told a different story.
After failing in its attempt to compete against Apple Inc. and Samsung Electronics Co. in the consumer smartphone market, BlackBerry in recent years has instead bet on BlackBerry-powered devices loaded with security and productivity tools, and sales of higher-margin mobile security offerings, to reignite growth.
Friday’s announcement of plans to launch a new device using a rival operating system, Google Inc.’s Android, suggests those efforts have struggled to gain traction. The new device, BlackBerry said, will offer the security of BlackBerry phones running on its own BB10 operating system along with Android’s greater number of apps.
BlackBerry tried a similar move in 2014, signing a deal with Amazon.com Inc. to preload the e-commerce giant’s app store on its devices. Today, Amazon’s app store offers about 400,000 applications, according to Statista, an Internet statistics firm. By offering an Android phone, BlackBerry adds about 1.6 million apps available on Google Play, according to Statista.
“This phone is the answer for former BlackBerry users who miss the physical keyboard but also need apps,” BlackBerry Chief Executive John Chen said on a conference call.
BlackBerry is calling the new device Priv in a nod to the company’s longtime focus on customer privacy. The curve-sided phone will offer both a touch screen and slide-out keyboard. It expects to launch the phone ahead of Christmas, a key shopping time for smartphones, Mr. Chen told reporters here.
BlackBerry didn’t offer distribution details about the new device or expected pricing, but the move underscored the underwhelming performance of its existing phones. Since September 2014, BlackBerry has released a string of devices, including the square-shaped Passport; the Classic, which is modeled after BlackBerry’s once popular Bold device; and the Leap. All are powered by BlackBerry’s BB10 operating system and aimed at corporate and professional users.
The company said that, in the fiscal second quarter ended Aug. 29, it had recognized hardware revenue on “over 800,000 BlackBerry smartphones.” That was down from 1.1 million in the first quarter and 2.1 million devices in last year’s fiscal second quarter.
“I am not satisfied where we are in overall revenue and profitability, especially the performance of our handset business,” Mr. Chen said. Still, he forecast the company would continue to generate cash in each quarter and be profitable in the fiscal fourth quarter, citing continued cost-cutting, expected improvements in device revenue and gains in software sales.
BlackBerry now expects to make the device business profitable from the annual sale of 5 million phones, comprising existing devices and the new “high-end” Android phone, Mr. Chen said. That is down from the previous target of 10 million phones.
BlackBerry is aiming to lure customers and boost profits with an Android phone. Android phones had close to an 83% share of the global smartphone market in the calendar second quarter, according to research firm International Data Corp. That compared with less than 1% for BlackBerry.
Still, the new phone will face stiff competition from Android devices offered by Samsung and others. BlackBerry is betting Priv’s security and productivity tools will differentiate the product from rivals. But Samsung, the biggest seller of Android phones, also offers a device security platform, known as Knox, to appeal to security-conscious customers such as governments.
“If we [can] build more enterprise demand for Android phones…at the high end…that’s good for Samsung,” Mr. Chen told reporters.
BlackBerry also plans to maintain its BB10 operating system to appease customers that favor that smartphone technology. That decision adds potential costs to the handset business at a time when cost-cutting remains a priority for the company.
“The move has challenges in front of it, that’s for sure,” said Ramon Llamas, an analyst at IDC.
Overall, BlackBerry posted a profit of $51 million in the second quarter, compared with a loss of $207 million a year earlier. Adjusted to exclude items, it lost 13 cents a share, worse than the nine-cent loss expected by analysts polled by Thomson Reuters.
Revenue overall fell 47% to $490 million, well below the $611 million analysts had projected. Revenue from software and services came in at $74 million, up from $62 million a year earlier, but down 46% from $137 million in the fiscal first quarter. The sequential decline resulted from the company not booking any new patent licensing deal in the latest period, Mr. Chen said.
BlackBerry is still targeting $500 million in software and licensing revenue for fiscal 2016.
Mr. Chen defended the performance of the software business. He noted that sales of the company’s BES12 mobile-device-management software, introduced in November, and BlackBerry’s QNX software that is used to power in-car infotainment systems, contributed the most to the year-over-year growth in software revenue.
Overall, the second-quarter “numbers are lower than expected…[but] I am still on plan,” Mr. Chen said.
BlackBerry shares were down 5.0% in recent New York trading and had lost 39% year-to-date.
Written by Ben Dummett of The Wall Street Journal
(Source: The Wall Street Journal)